Indian hotel industry gears up for strong growth

The Indian hotel industry is poised for a remarkable rebound in the fiscal year 2024, with experts predicting double-digit revenue growth. This positive outlook is largely attributed to several key factors that have been supporting the industry’s recovery.

A recent report by ICRA sheds light on the robust trends in the Indian hotel sector and points out the key drivers for this resurgence.

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One of the most significant factors contributing to the resurgence of the Indian hotel industry is the sustenance of domestic leisure travel. The COVID-19 pandemic dramatically reshaped the travel and hospitality landscape, with travellers showing a preference for exploring destinations within their own country. This domestic travel trend is expected to continue, providing a steady stream of guests to hotels across India.

The demand from Meetings, Incentives, Conferences, and Exhibitions (MICE) is also contributing to the industry’s growth. As businesses start to return to normal operations, the need for conferences and corporate events has surged. Hotels are benefiting from the hosting of these events, which has become a significant source of revenue.

Foreign Tourist Arrivals (FTAs) are also expected to increase in the latter half of fiscal year 2024, contributing to the industry’s growth. The ease of international travel restrictions and a desire to explore India’s diverse culture and landscapes are anticipated to attract more foreign tourists.

The G20 Summit and the ongoing ICC World Cup 2023 have provided a substantial boost to the Indian hotel industry. Hosting such major international events not only elevates the country’s global profile but also brings in a significant number of international visitors.

ICRA estimates that premium hotel occupancy in India will reach around 70-72 percent in FY2024, a notable improvement from the previous year. This increase in occupancy is complemented by a rise in Average Room Rates (ARRs), which are expected to be in the range of Rs 6,000-6,200 in FY2024. Although occupancy is reaching a decade-high, the Revenue per Available Room (RevPAR) is anticipated to remain 20-25 percent lower than the peak levels of 2008.

The medium-term outlook for the Indian hotel industry remains positive. Factors such as improved infrastructure and air connectivity, favourable demographics, and the opening of multiple new convention centers in recent years are expected to sustain healthy demand. Larger hotel chains are also set to benefit from hotel expansions through management contracts and operating leases.

Demand in the hotel industry will vary by location, competition, and other property-related dynamics. Gateway cities like Mumbai and Delhi are likely to witness occupancy rates of over 75 percent, thanks to transient passengers, business travellers, and MICE events. Other cities like Pune and Bengaluru may lag but are still expected to see a significant improvement in FY2024.

The pandemic prompted cost-rationalization measures in the industry, and these measures have persisted, resulting in an expansion of profit margins compared to pre-COVID levels. Companies have also embraced renewable energy sources, helping control operating costs.

While demand is surging, supply growth in the hotel industry is expected to increase at a CAGR of 3.5-4 percent over the medium term. However, supply is likely to lag behind demand due to land availability issues, especially in premium micro-markets in metros and larger cities. This supply constraint is encouraging the rebranding and upgrading of existing properties and the development of new hotels in suburban areas.

In conclusion, the Indian hotel industry is on a trajectory of robust recovery and growth in FY 2024, with positive demand trends, resilient domestic travel, international events, and cost-saving measures contributing to this resurgence. The industry’s ability to adapt and innovate in the face of challenges has allowed it to capitalize on emerging opportunities and position itself for a bright future.